UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21537
Name of Fund: Multi-Strategy Hedge Opportunities LLC
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, Multi-Strategy Hedge Opportunities LLC, 800 Scudders Mill Road,
Plainsboro, NJ 08536. Mailing address: P.O. Box 9011, Princeton, NJ
08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 03/31/05
Date of reporting period: 01/03/05 - 03/31/05
Item 1 - Report to Stockholders
Multi-Strategy Hedge
Opportunities LLC
Annual Report
March 31, 2005
Multi-Strategy Hedge Opportunities LLC
Portfolio Information as of March 31, 2005
Percent of Total
Ten Largest Holdings Investments
- --------------------------------------------------------------------------------
Canyon Value Realization Fund LP ....................................... 9.0%
Para Partners LP ....................................................... 8.2
Golden Tree Credit Opportunities LP .................................... 7.4
Kinetics Partners LP ................................................... 7.3
Copper Beech Partners II LP ............................................ 7.1
Glenview Institutional Partners LP ..................................... 6.9
Maverick Levered Partners LP ........................................... 5.0
CRG Partners LP ........................................................ 4.8
Context Convertible Arbitrage Fund LP .................................. 4.5
Smith Breeden Mortgage Partners LP ..................................... 4.3
- --------------------------------------------------------------------------------
Percent of
Investments by Strategy Net Assets
- --------------------------------------------------------------------------------
Event Driven .............................................. 27.0%
Equity Opportunistic ...................................... 26.7
Managed Futures ........................................... 14.0
Directional ............................................... 12.4
Convertible Arbitrage ..................................... 4.3
Fixed Income .............................................. 4.2
Multi-Strategy ............................................ 4.1
Equity Neutral ............................................ 3.8
Other* .................................................... 3.5
- --------------------------------------------------------------------------------
* Includes portfolio holdings in short-term securities.
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
2 MULTI-STRATEGY HEDGE OPPORTUNITIES LLC MARCH 31, 2005
A Letter From the President
Dear Shareholder
Financial markets broadly posted positive returns over the most recent reporting
period, with international equities providing some of the most impressive
results.
Total Returns as of March 31, 2005 6-month 12-month
========================================================================================
U.S. equities (Standard & Poor's 500 Index) + 6.88% + 6.69%
- ----------------------------------------------------------------------------------------
Small-cap U.S. equities (Russell 2000 Index) + 8.00 + 5.41
- ----------------------------------------------------------------------------------------
International equities (MSCI Europe Australasia Far East Index) +15.13 +15.06
- ----------------------------------------------------------------------------------------
Fixed income (Lehman Brothers Aggregate Bond Index) + 0.47 + 1.15
- ----------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) + 1.21 + 2.67
- ----------------------------------------------------------------------------------------
High yield bonds (Credit Suisse First Boston High Yield Index) + 3.39 + 7.84
- ----------------------------------------------------------------------------------------
The U.S. economy continued to show resilience in the face of the Federal Reserve
Board's (the Fed's) continued interest rate hikes and, more recently, higher oil
prices. The Fed's measured tightening program brought the federal funds rate to
2.75% by period-end as the central bank continued its campaign to combat
emergent inflation. In fact, business costs have been rising, which is beginning
to put pressure on corporate profit margins. Consumer prices have been moving up
as well, particularly in the areas of gasoline prices, healthcare costs, housing
and education.
U.S. equities ended 2004 in a strong rally, but stumbled into negative territory
in the first quarter of 2005. On the positive side, corporations have been
accelerating their hiring plans, capital spending remains reasonably robust and
merger-and-acquisition activity has increased. Offsetting the positives are
slowing corporate earnings growth, renewed energy price concerns and the
potential for an economic slowdown later this year. International equities,
especially in Asia, have benefited from higher economic growth rates. China, in
particular, recorded growth of more than 9% in 2004.
In the bond market, long-term interest rates finally began to inch higher while
significant increases have been recorded on the short end. This resulted in a
flattening of the yield curve throughout much of the current reporting period.
At March 31, 2005, the two-year Treasury note yielded 3.80% and the 10-year note
yielded 4.50%, a difference of 70 basis points (.70%). This compared to a spread
of 151 basis points six months earlier and 226 basis points 12 months ago.
Looking ahead, the environment is likely to be a challenging one for investors,
with diversification and selectivity becoming increasingly important themes.
With this in mind, we encourage you to meet with your financial advisor to
review your goals and asset allocation and to rebalance your portfolio, as
necessary, to ensure it remains aligned with your objectives and risk tolerance.
As always, we thank you for trusting Merrill Lynch Investment Managers with your
investment assets, and we look forward to serving you in the months and years
ahead.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Director
MULTI-STRATEGY HEDGE OPPORTUNITIES LLC MARCH 31, 2005 3
A Discussion With Your Fund's Portfolio Manager
We are pleased to provide you with this first shareholder report for
Multi-Strategy Hedge Opportunities LLC, a closed-end fund designed to offer
accredited investors access to opportunities in the hedge fund market.
What is the Fund's investment objective?
Multi-Strategy Hedge Opportunities seeks to achieve high total returns through
investments in hedge funds and other investment vehicles that pursue alternative
investment strategies. The Fund seeks to accomplish its objective by investing
primarily in hedge funds, commodity pools, funds of funds and other alternative
investment pools managed by securities and commodity trading advisers. Through
these types of investments, the Fund will typically gain exposure to several
common alternative investment strategies, such as relative value, global macro,
long/short equity and event-driven strategies. These are among the different
strategies that hedge funds in the market today use to generate returns and
manage risks. In the discussion that follows, we will make reference to
"managers," or hedge funds, that employ these various strategies. The Fund's
allocations to underlying managers and strategies are based on, among other
factors, quantitative techniques and risk management guidelines that seek to
maintain diversification.
How has the Fund performed since its inception?
Since its inception on January 3, 2005, through March 31, 2005, the units of
Multi-Strategy Hedge Opportunities LLC provided a total net investment return of
- -.21%, based on a change in per share net asset value from $1.00 to $.9979. This
compares to the -.20% return of the Standard & Poor's (S&P) Hedge Fund Index for
the same period. The Fund outperformed more traditional investments during this
three-month timeframe, including the S&P 500 Index, which returned -2.15%, and
the Lehman Brothers Aggregate Bond Index, which returned -.48%.
Describe the market environment and how the various alternative investment
strategies fared under these conditions.
After a strong fourth quarter of 2004, the first quarter of 2005 proved more
challenging for financial markets, which were pressured by rising interest
rates, surging oil prices and decelerating earnings growth. Equity and debt
markets declined, while a profit warning from General Motors contributed to a
widening of credit spreads in March. Despite the broad market weakness, equity
volatility remained rather muted.
Our event-driven strategies (broadly consisting of managers investing in high
yield and distressed credits, corporate restructurings, reorganizations,
spin-offs, special situations and capital structure arbitrage) produced positive
results for the period. However, performance among investments was mixed.
Managers that focused on special situations were able to generate profits in
January, while high yield and distressed debt managers struggled as credit
spreads widened. Although spreads recovered and tightened further in February,
disappointing earnings guidance from General Motors led to a widespread credit
sell-off in mid-March. In addition, technical conditions deteriorated as high
yield mutual fund flows were negative and several new issues came to market.
Our equity opportunistic hedge fund investments were modestly positive during
the period, as short-selling and some more traditional long investments helped
mitigate the losses of the broader stock markets. Managers with short positions
in interest-rate-sensitive sectors, including consumers, financials and
telecommunications, outperformed. Year-to-date, energy and commodity stocks have
replaced technology as the momentum plays of the markets and, accordingly,
equity managers with significant long energy exposure outperformed.
Equity market neutral managers generally produced positive performance during
the period, as investors started to shift their attention from solely
macroeconomic and political events to company fundamentals. This change in
sentiment benefited the strategy because market neutral managers tend to focus
on earnings expectations, financial quality, and relative valuation differences
between companies. In addition, statistical arbitrage managers who focus on
technical market factors, such as price mean reversion and momentum, performed
positively as the relative valuation gap between cheap and expensive stocks
narrowed. One of our managers who trades on price data generated profits mainly
from intra-day and short-term models.
The markets were challenging for directional managers during the period, as
there were few clear trends in the marketplace. Many directional managers were
short the U.S. dollar, assuming that it would depreciate because of the growing
U.S. budget and current account deficits. However, the dollar rallied throughout
the quarter as the U.S. economy remained strong and the Federal Reserve Board
(the Fed) continued to
4 MULTI-STRATEGY HEDGE OPPORTUNITIES LLC MARCH 31, 2005
raise interest rates in a measured fashion. Our managers were able to mitigate
their losses from currency and equity trading by generating profits in the
agriculture and energy markets.
The managed futures space also struggled in a difficult market environment,
mainly due to movements in the U.S. dollar. Similar to the experience of macro
managers, losses were posted in foreign exchange trading as the dollar reversed
its downward trend and began to strengthen. Overall, currency markets remained
very choppy with no clear trends in place. Somewhat offsetting losses from
currency trading, our managers took advantage of rising prices and higher demand
globally to generate profits in the energy and metals sectors. In addition, the
managers in the portfolio posted gains by shorting the front end of the U.S.
yield curve and taking a long position in European bonds.
Despite rising interest rates and a flattening yield curve (which are generally
challenging for fixed income managers), our fixed income arbitrage managers were
able to generate positive returns. The Fed noted that increased inflationary
pressures could force it to abandon its measured monetary tightening policy.
However, volatility remained rather subdued and mortgages continued to perform
well, although spreads began to widen in late March. Our managers produced
positive returns mainly through trading commercial mortgage-backed and
asset-backed securities versus duration-matched swaps.
Convertible arbitrage managers weathered a difficult environment during the
first quarter. In fact, March was the worst month for this strategy since 1999.
Redemptions out of the strategy (and the fear of additional redemptions)
continued to depress convertible bond valuations and cast a pall over the
market. Despite several short-lived upturns, equity volatility remained near
multi-year lows and our managers were unable to generate profits. The Fund
remains heavily underweight in this sector.
How have you managed the Fund since its inception?
The portfolio's assets under management grew from $51 million at the product's
launch in January to $73 million at March 31, 2005. We made no major changes to
the portfolio allocation since the Fund's inception. As our assets under
management grew, we increased allocations to existing managers and selectively
added a new managed futures fund that focuses on non-financial commodity
trading.
At March 31, 2005, the Fund was comprised of 22 underlying managers and its
market exposure was broken down as follows: Event-driven/special situations
(27.0%), equity opportunistic (26.7%), directional (12.4%), managed futures
(14.0%, of which 8.8% is fundamental), equity market neutral (3.8%), convertible
arbitrage (4.3%), fixed income arbitrage (4.2%) and multi-strategy (4.1%).
How would you characterize the Fund's position at the close of the period?
The Fund remains defensively positioned, favoring managers that have the ability
to respond to changing market conditions. In the fixed income markets, we
continue to believe that yield spreads will widen. While we are positioned to
benefit from any potential widening of spreads, we believe that an aggressive
stance is not prudent given the market's temperament. In the equity markets, we
believe the movement to a market neutral strategy will bear fruit and continue
to bolster the Fund's relative performance. Overall, rising interest rates and
decelerating economic growth could create further instability across the
financial markets, placing increased importance on hedge fund manager selection
and strategy allocation.
Fabio Savoldelli
Vice President and Portfolio Manager
April 15, 2005
MULTI-STRATEGY HEDGE OPPORTUNITIES LLC MARCH 31, 2005 5
Disclosure of Expenses
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, and (b) operating expenses, including
advisory fees, member services fees and other Fund expenses. The following
example (which is based on a hypothetical investment of $1,000 invested on
January 3, 2005 and held through March 31, 2005) is intended to assist
shareholders both in calculating expenses based on an investment in the Fund and
in comparing these expenses with similar costs of investing in other mutual
funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders ongoing
costs only and do not reflect any transactional expenses, such as sales charges.
Therefore, the second table is useful in comparing ongoing expenses only, and
will not help shareholders determine the relative total expenses of owning
different funds. If these transactional expenses were included, shareholder
expenses would have been higher.
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value January 3, 2005 to
January 3, 2005 March 31, 2005 March 31, 2005
=========================================================================================================
Actual
=========================================================================================================
Multi-Strategy Hedge Opportunities LLC $1,000 $ 997.90 $7.13
=========================================================================================================
Hypothetical (5% annual return before expenses)**
=========================================================================================================
Multi-Strategy Hedge Opportunities LLC $1,000 $1,004.83 $7.24
=========================================================================================================
* Expenses are equal to the annualized expense ratio of 2.96%, multiplied by
the average account value over the period, multiplied by 88/365 (to
reflect the three-month period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal three months divided by 365.
6 MULTI-STRATEGY HEDGE OPPORTUNITIES LLC MARCH 31, 2005
Schedule of Investments (in U.S. dollars)
Strategy Portfolio Funds Value
==========================================================================================================================
Convertible Arbitrage--4.3% Context Convertible Arbitrage Fund LP $ 3,256,297
==========================================================================================================================
Directional--12.4% Cornerstone International Value Fund LLC 1,302,241
CRG Partners LP 3,519,333
Neon Liberty Emerging Markets Fund LP 1,432,322
TGM Eagle Fund 3,085,397
-----------
9,339,293
==========================================================================================================================
Equity Neutral--3.8% Ventus US$ Double Leverage Fund 2,887,179
==========================================================================================================================
Equity Opportunistic--26.7% Copper Beech Partners II LP 5,132,802
Glenview Institutional Partners LP 5,038,098
Kinetics Partners LP 5,303,513
Maverick Levered Partners LP 3,654,487
Zaxis Equity Neutral LP 974,174
-----------
20,103,074
==========================================================================================================================
Event Driven--27.0% Canyon Value Realization Fund LP 6,572,485
Golden Tree Credit Opportunities LP 5,369,884
LibertyView Credit Opportunities Fund II, LLC 2,421,662
Para Partners LP 5,989,548
-----------
20,353,579
==========================================================================================================================
Fixed Income--4.2% Smith Breeden Mortgage Partners LP 3,124,880
==========================================================================================================================
Managed Futures--14.0% Grossman Currency Fund LP 2,396,923
FX Concepts Global Funds Master Trust 1,836,754
Kottke Arbitrage Opportunity Fund LLC 2,375,860
Salem Futures Fund LP 1,821,326
Winton Futures Fund 2,105,108
-----------
10,535,971
==========================================================================================================================
Multi-Strategy--4.1% Double Black Diamond LP 3,111,009
==========================================================================================================================
Total Investments (Cost--$72,400,000*)--96.5% 72,711,282
Other Assets Less Liabilities--3.5% 2,636,178
-----------
Net Assets--100.0% $75,347,460
===========
* The cost and unrealized appreciation (depreciation) of investments as of
March 31, 2005, as computed for federal income tax purposes, were as
follows:
Aggregate cost ............................................ $72,400,000
===========
Gross unrealized appreciation ............................. $ 996,488
Gross unrealized depreciation ............................. $ (685,206)
-----------
Net unrealized appreciation ............................... $ 311,282
===========
See Notes to Financial Statements.
MULTI-STRATEGY HEDGE OPPORTUNITIES LLC MARCH 31, 2005 7
Statement of Assets and Liabilities
As of March 31, 2005
===============================================================================================================================
Assets
- -------------------------------------------------------------------------------------------------------------------------------
Investments in Portfolio Funds*, at value (identified cost--$72,400,000) $ 72,711,282
Cash and cash equivalents .............................................. 12,794,126
Investments paid in advance ............................................ 1,000,000
Interest receivable .................................................... 6,831
Reimbursement from advisor ............................................. 49,631
Prepaid expenses and other assets ...................................... 336,555
------------
Total assets ........................................................... 86,898,425
------------
===============================================================================================================================
Liabilities
- -------------------------------------------------------------------------------------------------------------------------------
Payables:
Investment adviser .................................................. $ 238,515
Service agents ...................................................... 302,759 541,274
------------
Subscriptions received in advance ...................................... 10,409,843
Redemptions Payable .................................................... 48,398
Accrued expenses and other liabilities ................................. 551,450
------------
Total liabilities ...................................................... 11,550,965
------------
===============================================================================================================================
Net Assets
- -------------------------------------------------------------------------------------------------------------------------------
Net assets ............................................................. $ 75,347,460
============
===============================================================================================================================
Net Assets Consist of
- -------------------------------------------------------------------------------------------------------------------------------
Investors' capital ..................................................... $ 75,485,403
Unrealized appreciation--net ........................................... 311,282
Undistributed net investment loss ...................................... (449,225)
------------
Net Assets ............................................................. $ 75,347,460
============
Shares outstanding ..................................................... 75,509,304
============
Net asset value per share .............................................. $ .9979
============
* Non-income securities.
See Notes to Financial Statements.
8 MULTI-STRATEGY HEDGE OPPORTUNITIES LLC MARCH 31, 2005
Statement of Operations
For the Period January 3, 2005+ to March 31, 2005
===============================================================================================================================
Investment Income
- -------------------------------------------------------------------------------------------------------------------------------
Interest ............................................................... $ 21,968
------------
===============================================================================================================================
Expenses
- -------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ............................................... $ 238,515
Offering costs ......................................................... 112,185
Accounting and administration services ................................. 47,327
Member services fee .................................................... 39,761
Professional fees ...................................................... 33,750
Printing and shareholder reports ....................................... 9,625
Directors' fees and expenses ........................................... 8,500
Custodian fees ......................................................... 1,800
Other .................................................................. 29,361
------------
Total expenses ......................................................... 520,824
------------
Less: Expense waivers .................................................. (49,631)
------------
Net expenses ........................................................... 471,193
------------
Investment loss -- net ................................................. (449,225)
------------
===============================================================================================================================
Unrealized Gain
- -------------------------------------------------------------------------------------------------------------------------------
Unrealized appreciation on investments -- net .......................... 311,282
------------
Net Decrease in Net Assets Resulting from Operations ................... $ (137,943)
============
+ Commencement of operations.
See Notes to Financial Statements.
MULTI-STRATEGY HEDGE OPPORTUNITIES LLC MARCH 31, 2005 9
Statements of Changes in Net Assets
For the Period
January 3, 2005+
to March 31,
Increase (Decrease) in Net Assets: 2005
=====================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------
Investment loss -- net ....................................... $ (449,225)
Unrealized appreciation -- net ............................... 311,282
------------
Net decrease in net assets resulting from operations ......... (137,943)
------------
=====================================================================================================
Capital Transactions
- -----------------------------------------------------------------------------------------------------
Proceeds from contributions .................................. $ 75,433,801
Fair value of withdrawals .................................... (48,398)
------------
Net increase in net assets derived from capital transactions . 75,385,403
------------
=====================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------
Total increase in net assets ................................. 75,247,460
Beginning of period .......................................... 100,000
------------
End of period ................................................ $ 75,347,460
============
+ Commencement of operations.
See Notes to Financial Statements.
10 MULTI-STRATEGY HEDGE OPPORTUNITIES LLC MARCH 31, 2005
Statement of Cash Flows
For the Period January 3, 2005+ to March 31, 2005
=====================================================================================================
Cash Used for Operating Activities
- -----------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations ......... $ (137,943)
Adjustments to reconcile net increase in net assets resulting
from operations to net cash provided by operating activities:
Increase in receivables ................................... (1,006,831)
Increase in other assets .................................. (386,186)
Increase in other liabilities ............................. 11,550,965
Increase in unrealized gain -- net ........................ (311,282)
Purchases of long-term securities ............................ (72,400,000)
------------
Net cash used for investing activities ....................... (62,691,277)
------------
=====================================================================================================
Cash Provided by Financing Activities
- -----------------------------------------------------------------------------------------------------
Cash receipts from issuance of Units ......................... $ 75,433,801
Cash disbursements from tender of Units ...................... (48,398)
------------
Net cash provided by financing activities .................... 75,385,403
------------
=====================================================================================================
Cash & Cash Equivalents
- -----------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents .................... 12,694,126
Cash and cash equivalents at beginning of period ............. 100,000
------------
Cash and cash equivalents at end of period ................... $ 12,794,126
============
+ Commencement of operations.
See Notes to Financial Statements.
MULTI-STRATEGY HEDGE OPPORTUNITIES LLC MARCH 31, 2005 11
Financial Highlights
For the Period
January 3, 2005+
The following ratios have been derived from to March 31,
information provided in the financial statements. 2005
=====================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------
Net asset value, beginning of period ......................... $ 1.0000
Investment loss -- net ....................................... (.0070)
Unrealized gain .............................................. .0049
------------
Total from investment operations ............................. (.0021)
------------
Net asset value, end of period ............................... $ .9979
============
=====================================================================================================
Total Investment Return
- -----------------------------------------------------------------------------------------------------
Total investment return ...................................... (.21%)++
============
=====================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------
Expenses ..................................................... 3.28%*
============
Expenses net of reimbursement ................................ 2.96%*
============
Investment loss -- net ....................................... (2.83%)*
============
=====================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ..................... $ 75,347
============
Portfolio turnover ........................................... 0%
============
* Annualized.
+ Commencement of operations.
++ Aggregate total investment return; not annualized.
See Notes to Financial Statements.
12 MULTI-STRATEGY HEDGE OPPORTUNITIES LLC MARCH 31, 2005
Notes to Financial Statements
1. Significant Accounting Policies:
Multi-Strategy Hedge Opportunities LLC (the "Company") is registered under the
Investment Company Act of 1940, as amended, as a closed-end, non-diversified
management investment company. The Company's financial statements are prepared
in conformity with U.S. generally accepted accounting principles, which may
require the use of management accruals and estimates. Actual results may differ
from these estimates. The Company offers one class of shares, which may be sold
with a front-end sales charge. The following is a summary of significant
accounting policies followed by the Company.
(a) Valuation of investments in Portfolio Funds -- The Company values its
investments in Portfolio Funds at fair value in accordance with procedures
established by the Board of Directors. The valuations reported by the Portfolio
Fund Managers of the Portfolio Funds, upon which the Company calculates its
month-end net asset value and net asset value per Unit, may be subject to later
adjustment, based upon information reasonably available at that time. The
Company will pay repurchase proceeds, as well as calculate management fees, on
the basis of net asset valuations determined using the best information
available as of the valuation date. In the event a Portfolio Fund subsequently
corrects, revises or adjusts a valuation after the Company has determined a net
asset value, the Company will generally not make any retroactive adjustment to
such net asset value, or to any amounts paid based on such net asset value, to
reflect a revised valuation.
(b) Income taxes -- The Company is classified as a partnership for federal
income tax purposes. As such, each investor in the Company is treated as owner
of its proportionate share of the net assets, income, expenses and realized and
unrealized gains and losses of the Company. Therefore, no federal income tax
provision is required.
(c) Security transactions and investment income -- Portfolio Fund transactions
are recorded on the effective dates of the transactions. Realized gains and
losses on Portfolio Fund transactions are determined on the average cost basis.
Interest income is recognized on the accrual basis.
(d) Cash balances -- The Company maintains cash in the PNC Money Market account,
which, at times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts and does not believe it is exposed to
any significant credit risk on such bank deposits.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Company has entered into an Investment Advisory Agreement with Merrill Lynch
Investment Managers LLC ("MLIM"). MLIM is an indirect, wholly-owned subsidiary
of Merrill Lynch & Co., Inc. ("ML & Co.").
MLIM is responsible for the management of the Company's portfolio and provides
the necessary personnel, facilities, equipment and certain other services
necessary to the operations of the Company. For such services, the Company pays
a monthly fee at an annual rate of 1.50% of the average month-end value of the
Company's net assets.
The Company has also entered into a Member Services Agreement with FAM
Distributors, Inc. ("FAMD" and the "Service Agent"), an affiliate of MLIM. FAMD
provides or arranges for provision of ongoing investor and account maintenance
services. The Company pays a monthly fee computed at the annual rate of .25% of
the Company's average month-end assets (the "Service Fee"). The Service Fee will
be paid to the Service Agent to reimburse it for payments made to broker-dealers
and financial advisors that have agreed to provide ongoing investor and account
maintenance services to members of the Company and for ongoing investor
servicing activities performed by the Service Agent.
For the three-month period ended March 31, 2005, FAMD received $1,878,119 in
distribution fees on sales of shares in the Company.
Certain officers and/or directors of the Company are officers and/or directors
of MLIM and/or ML & Co.
3. Investments:
Purchases of investments, excluding short-term securities, for the three months
ended March 31, 2005 were $72,400,000.
MULTI-STRATEGY HEDGE OPPORTUNITIES LLC MARCH 31, 2005 13
Notes to Financial Statements (continued)
4. Capital Share Transactions:
An investor purchases Units in the Company and the Units are offered at their
net asset value. The minimum initial investment for each investor is $25,000
(net of any distribution fees) and the minimum additional investment is $10,000.
An investor's subscription for Units is irrevocable by the investor and will
generally require the investor to maintain its investment in the Company until
such time as the Company offers to repurchase the Units in a tender offering. No
member or other person holding Units acquired from a Member will have the right
to require the Company to redeem the Units. The Company may from time to time
repurchase Units from Members in accordance with written tenders by Members at
those times, in those amounts and on terms and conditions as the Board of
Directors may determine in its sole discretion. The Adviser expects that it will
recommend to the Board of Directors that the Company offer to repurchase Units
from Members quarterly on the last business day of March, June, September and
December.
Transactions in capital shares were as follows:
- --------------------------------------------------------------------------------
For the Three Months Dollar
Ended March 31, 2005 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ...................... 75,457,804 $ 75,433,801
Shares tendered .................. (48,500) (48,398)
-----------------------------------
Net increase ..................... 75,409,304 $ 75,385,403
===================================
5. Investments in Portfolio Funds:
The following table lists the Company's investments in Portfolio Funds for the
period ending March 31, 2005, none of which was a related party. The agreements
related to investments in Portfolio Funds provide for the compensation in the
form of management fees of 1% to 3% (per annum) of net assets and performance
incentive fees or allocations of 10% to 20% of net profits earned.
Information about the underlying investments held by the Portfolio Funds is not
readily available, so it is unknown whether the Portfolio Funds hold any single
investment whereby the Company's proportionate share exceeds 5% of the Company's
net assets at March 31, 2005.
- -----------------------------------------------------------------------------------------------------------------------
Fees
% of Fund's Net Income ------------------------- Redemptions
2005 Investments Total Fair Value Fair Value (Loss) Management Incentive Permitted
- -----------------------------------------------------------------------------------------------------------------------
Canyon Value 9.0% $ 6,572,485 $ 72,485 1.5% 20% Monthly
Context Convertible 4.5% 3,256,297 (143,703) 1.5% 20% Quarterly
Copper Beach 7.1% 5,132,802 (67,198) 1% 20% Quarterly
Cornerstone Int'l 1.8% 1,302,241 (97,759) 0.5% 20% Monthly
CRG Partners 4.9% 3,519,333 (80,667) 2% 20% Monthly
Double Black Diamond 4.3% 3,111,009 11,009 1% 20% Quarterly
FX Concepts 2.5% 1,836,754 (63,246) 1.5% 20% Monthly
Glenview Institutional 6.9% 5,038,098 238,098 1% 20% Monthly
Golden Tree Opp 7.4% 5,369,884 69,884 2% 20% Semi-Annual
Grossman Currency 3.3% 2,396,923 (3,077) 3% 25% Monthly
Kinetic Partners 7.3% 5,303,513 103,513 1% 20% Monthly
Kottke Arbitrage 3.3% 2,375,860 75,860 2% 20% Monthly
LibertyView Credit 3.3% 2,421,662 21,662 1% 20% Quarterly
Maverick Levered 5.0% 3,654,487 54,487 1% 20% Quarterly
Neon Liberty 2.0% 1,432,322 32,322 1.5% 20% Quarterly
Para Partners 8.2% 5,989,548 (10,452) 1.25% 20% Quarterly
Salem Futures 2.5% 1,821,326 (178,674) 2% 20% Quarterly
Smith Breeden 4.3% 3,124,880 24,880 1% 20% Quarterly
TGM Eagle 4.2% 3,085,397 (14,603) 1.5% 20% Daily
Ventus US$ 4.0% 2,887,179 187,179 2% 20% Monthly
Winton Futures 2.9% 2,105,108 105,108 1% 20% Monthly
Zaxis Equity 1.3% 974,174 (25,826) 1% 20% Quarterly
------------------------------------------
Total 100.0% $72,711,282 $ 311,282
==========================================
14 MULTI-STRATEGY HEDGE OPPORTUNITIES LLC MARCH 31, 2005
Notes to Financial Statements (concluded)
6. Short-Term Borrowings:
The Company is a party to a $50,000,000 credit agreement with Harris Trust and
Savings Bank. The Company may borrow under the credit agreement to fund
shareholder redemptions and for other lawful purposes including leverage. The
Company may borrow up to the maximum amount allowable under the Company's
current prospectus and statement of additional information, subject to various
other legal, regulatory or contractual limits. The Company pays a commitment fee
of .375% per annum based on the unused portion of the Fee Cap (a minimum of
$20,000,000) as defined in the credit agreement. Amounts borrowed under the
credit agreement bear interest at a rate equal to, at the Company's election,
the federal funds rate plus 1.75% or a base rate, as defined in the credit
agreement, minus 1%. The Company did not borrow under the credit agreement
during the three months ended March 31, 2005.
7. Risk Factors:
An investment in the Company involves a high degree of risk, including the risk
that the entire amount invested may be lost. The Company allocates assets to
Portfolio Managers and invests in Portfolio Funds that invest in and actively
trade securities and other financial instruments using a variety of strategies
and investment techniques with significant risk characteristics, including the
risks arising from the volatility of the equity, fixed income, commodity and
currency markets, the risks of borrowings and short sales, the risks arising
from leverage associated with trading in the equities, currencies and
over-the-counter derivatives markets, the illiquidity of derivative instruments
and the risk of loss from counterparty defaults. No guarantee or representation
is made that the investment program will be successful.
8. Subsequent Event:
Throughout the normal course of business on April 1, 2005, there were additional
capital contributions of $10,409,843 to the Company.
MULTI-STRATEGY HEDGE OPPORTUNITIES LLC MARCH 31, 2005 15
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
Multi-Strategy Hedge Opportunities LLC:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Multi-Strategy Hedge Opportunities LLC as of
March 31, 2005, the related statements of operations, changes in net assets and
cash flows, and the financial highlights for the period January 3, 2005
(commencement of operations) to March 31, 2005. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Fund's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of March 31, 2005, by
correspondence with the custodian and financial intermediaries; where replies
were not received from financial intermediaries, we performed other auditing
procedures. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Multi-Strategy Hedge Opportunities LLC as of March 31, 2005, the results of its
operations, the changes in its net assets, its cash flows, and its financial
highlights for the period January 3, 2005 through March 31, 2005, in conformity
with U.S. generally accepted accounting principles.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
May 20, 2005
16 MULTI-STRATEGY HEDGE OPPORTUNITIES LLC MARCH 31, 2005
Officers and Directors
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Interested Director
- ------------------------------------------------------------------------------------------------------------------------------------
Robert C. P.O. Box 9011 President 2005 to President of MLIM/FAM-advised funds since 2005; 124 Funds None
Doll, Jr.* Princeton, NJ and present President of MLIM and FAM since 2001; Co-Head 163 Portfolios
08543-9011 Director (Americas Region) thereof from 2000 to 2001 and
Age: 50 Senior Vice President from 1999 to 2001; President
and Director of Princeton Services, Inc. ("Princeton
Services") since 2001; President of Princeton
Administrators, L.P. ("Princeton Administrators")
since 2001; Chief Investment Officer of Oppenheimer
Funds, Inc. in 1999 and Executive Vice President
thereof from 1991 to 1999.
------------------------------------------------------------------------------------------------------------------------
* Mr. Doll is a director, trustee or member of an advisory board of certain other investment companies for which MLIM or
FAM acts as investment adviser. Mr. Doll is an "interested person," as defined in the Investment Company Act, of the
Fund based on his current positions with MLIM, FAM, Princeton Services and Princeton Administrators, L.P. Directors
serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. As Fund
President, Mr. Doll serves at the pleasure of the Board of Directors.
====================================================================================================================================
Independent Directors*
- ------------------------------------------------------------------------------------------------------------------------------------
David O. P.O. Box 9095 Director 2004 to Professor of Finance and Economics at the Columbia 15 Funds None
Beim Princeton, NJ present University Graduate School of Business since 1991; 18 Portfolios
08543-9095 Chairman of Outward Bound U.S.A. from 1997 to
Age: 64 2001; Chairman of Wave Hill, Inc. since 1990; Trustee
of Phillips Exeter Academy from 2002 to present.
- ------------------------------------------------------------------------------------------------------------------------------------
James T. P.O. Box 9095 Director 2004 to Chief Financial Officer of JPMorgan & Co., Inc. from 15 Funds None
Flynn Princeton, NJ present 1990 to 1995 and an employee of JPMorgan in 18 Portfolios
08543-9095 various capacities from 1967 to 1995.
Age: 65
- ------------------------------------------------------------------------------------------------------------------------------------
W. Carl P.O. Box 9095 Director 2004 to Mizuho Financial Group, Professor of Finance; Senior 15 Funds None
Kester Princeton, NJ present Associate Dean and Chairman of the MBA Program 18 Portfolios
08543-9095 of Harvard Business School since 1999; Member of
Age: 53 the faculty of Harvard Business School since 1981;
Independent consultant since 1978.
- ------------------------------------------------------------------------------------------------------------------------------------
Karen P. P.O. Box 9095 Director 2004 to President of Robards & Company, a financial advisory 15 Funds None
Robards Princeton, NJ present firm since 1987; formerly an investment banker with 18 Portfolios
08543-9095 Morgan Stanley for more than ten years; Director of
Age: 55 Enable Medical Corp. since 1996; Director of
AtriCure, Inc. since 2000; Director of CineMuse Inc.
from 1996 to 2000; Director of the Cooke Center for
Learning and Development, a not-for-profit
organization, since 1987.
------------------------------------------------------------------------------------------------------------------------
* Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.
- ------------------------------------------------------------------------------------------------------------------------------------
MULTI-STRATEGY HEDGE OPPORTUNITIES LLC MARCH 31, 2005 17
Officers and Directors (concluded)
Position(s) Length of
Held with Time
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers*
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 2004 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since 1999;
Burke Princeton, NJ President present Senior Vice President and Treasurer of Princeton Services since 1999 and Director
08543-9011 and since 2004; Vice President of FAMD since 1999; Vice President of MLIMand FAM from
Age: 44 Treasurer 1990 to 1997; Director of Taxation of MLIM from 1990 to 2001; Vice President,
Treasurer and Secretary of the IQ Funds since 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
Fabio P. P.O. Box 9011 Vice 2004 to Managing Director of MLIM since 2000; Chief Investment Officer of MLIM's
Savoldelli Princeton, NJ President present Alternative Strategies division since 2003.
08543-9011
Age: 43
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey P.O. Box 9011 Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President and
Hiller Princeton, NJ Compliance present Chief Compliance Officer of MLIM (Americas Region) since 2004; Chief Compliance
08543-9011 Officer Officer of the IQ Funds since 2004; Global Director of Compliance at Morgan Stanley
Age: 53 Investment Management from 2002 to 2004; Managing Director and Global Director of
Compliance at Citigroup Asset Management from 2000 to 2002; Chief Compliance
Officer at Soros Fund Management in 2000; Chief Compliance Officer at Prudential
Financial from 1995 to 2000; Senior Counsel in the Commission's Division of
Enforcement in Washington, D.C. from 1990 to 1995.
- ------------------------------------------------------------------------------------------------------------------------------------
Alice A. P.O. Box 9011 Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from 1999 to
Pellegrino Princeton, NJ present 2002; Attorney associated with MLIM since 1997; Secretary of MLIM, FAM, FAMD and
08543-9011 Princeton Services since 2004.
Age: 45
------------------------------------------------------------------------------------------------------------------------
* Officers of the Fund serve at the pleasure of the Board of Directors.
- ------------------------------------------------------------------------------------------------------------------------------------
Custodian
PFPC Trust Company
8800 Tinicum Boulevard
3rd Floor, Suite 200
Philadelphia, PA 19153
Administrator & Escrow Agent
PFPC, Inc.
301 Bellevue Parkway
Wilmington, DE 19809
- --------------------------------------------------------------------------------
Effective January 1, 2005, Terry K. Glenn retired as President and Director of
Multi-Strategy Hedge Opportunities LLC. The Fund's Board of Directors wishes Mr.
Glenn well in his retirement.
Effective January 1, 2005, Robert C. Doll, Jr. became President and Director of
the Fund.
- --------------------------------------------------------------------------------
18 MULTI-STRATEGY HEDGE OPPORTUNITIES LLC MARCH 31, 2005
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site at http://www.icsdelivery.com/live and follow the instructions. When you
visit this site, you will obtain a personal identification number (PIN). You
will need this PIN should you wish to update your e-mail address, choose to
discontinue this service and/or make any other changes to the service. This
service is not available for certain retirement accounts at this time.
MULTI-STRATEGY HEDGE OPPORTUNITIES LLC MARCH 31, 2005 19
[LOGO] Merrill Lynch Investment Managers
www.mlim.ml.com
- --------------------------------------------------------------------------------
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.ml.com
Multi-Strategy Hedge Opportunities LLC seeks high total return over a full
market cycle through investments in hedge funds and other investment vehicles
pursuing alternative investment strategies.
This report, including the financial information herein, is transmitted for use
only to the shareholders of Multi-Strategy Hedge Opportunities LLC for their
information. It is not a prospectus, circular or representation intended for use
in the purchase of shares of the Fund or any securities mentioned in this
report. Past performance results shown in this report should not be considered a
representation of future performance.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863); (2)
at www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
Web site at http://www.sec.gov.
Multi-Strategy Hedge Opportunities LLC
Box 9011
Princeton, NJ
08543-9011
#MHO -- 3/05
Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as of the
end of the period covered by this report, that applies to the
registrant's principal executive officer, principal financial officer
and principal accounting officer, or persons performing similar
functions. A copy of the code of ethics is available without charge
upon request by calling toll-free 1-800-MER-FUND (1-800-637-3863).
Item 3 - Audit Committee Financial Expert - The registrant's board of directors
has determined that (i) the registrant has the following audit
committee financial experts serving on its audit committee and (ii)
each audit committee financial expert is independent: (1) David O.
Beim, (2) W. Carl Kester, (3) James T. Flynn and (4) Karen P. Robards.
The registrant's board of directors has determined that David O. Beim,
W. Carl Kester and Karen P. Robards qualify as financial experts
pursuant to Item 3(c)(4) of Form N-CSR.
Mr. Beim has a thorough understanding of generally accepted accounting
principles, financial statements and internal control over financial
reporting as well as audit committee functions. For 25 years, Mr. Beim
was an investment banker actively engaged in financial analysis for
securities transactions and mergers. These transactions presented a
breadth and level of complexity of accounting issues that are generally
comparable to the breadth and complexity of issues that can reasonably
be expected to be raised by the Registrant's financial statements. Mr.
Beim has also been a professor of finance and economics at the Columbia
University Graduate School of Business for the past 11 years.
Prof. Kester has a thorough understanding of generally accepted
accounting principles, financial statements and internal control over
financial reporting as well as audit committee functions. Prof. Kester
has been involved in providing valuation and other financial consulting
services to corporate clients since 1978. Prof. Kester's financial
consulting services present a breadth and level of complexity of
accounting issues that are generally comparable to the breadth and
complexity of issues that can reasonably be expected to be raised by
the Registrant's financial statements.
Ms. Robards has a thorough understanding of generally accepted
accounting principles, financial statements and internal control over
financial reporting as well as audit committee functions. Ms. Robards
has been President of Robards & Company, a financial advisory firm,
since 1987. Ms. Robards was formerly an investment banker for more than
10 years where she was responsible for evaluating and assessing the
performance of companies based on their financial results. Ms. Robards
has over 30 years of experience analyzing financial statements. She
also is the member of the Audit Committees of two privately held
companies and a non-profit organization.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending March 31, 2005 - $30,000
Fiscal Year Ending March 31, 2004 - $N/A
(b) Audit-Related Fees - Fiscal Year Ending March 31, 2005 - $0
Fiscal Year Ending March 31, 2004 - $N/A
(c) Tax Fees - Fiscal Year Ending March 31, 2005 - $0
Fiscal Year Ending March 31, 2004 - $N/A
(d) All Other Fees - Fiscal Year Ending March 31, 2005 - $0
Fiscal Year Ending March 31, 2004 - $N/A
(e)(1) The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to the
registrant's affiliated service providers that relate directly to the
operations and the financial reporting of the registrant. Certain of
these non-audit services that the Committee believes are a) consistent
with the SEC's auditor independence rules and b) routine and recurring
services that will not impair the independence of the independent
accountants may be approved by the Committee without consideration on a
specific case-by-case basis ("general pre-approval"). However, such
services will only be deemed pre-approved provided that any individual
project does not exceed $5,000 attributable to the registrant or
$50,000 for all of the registrants the Committee oversees. Any proposed
services exceeding the pre-approved cost levels will require specific
pre-approval by the Committee, as will any other services not subject
to general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending March 31, 2005 - $10,018,400
Fiscal Year Ending March 31, 2004 - $16,708,160
(h) The registrant's audit committee has considered and determined that
the provision of non-audit services that were rendered to the
registrant's investment adviser and any entity controlling, controlled
by, or under common control with the investment adviser that provides
ongoing services to the registrant that were not pre-approved pursuant
to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible
with maintaining the principal accountant's independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $945,000, 0%
Item 5 - Audit Committee of Listed Registrants - The following individuals are
members of the registrant's separately-designated standing audit
committee established in accordance with Section 3(a)(58)(A) of the
Exchange Act (15 U.S.C. 78c(a)(58)(A)):
David O. Beim
James T. Flynn
W. Carl Kester
Karen P. Robards
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies -
Proxy Voting Policies and Procedures
Each Fund's Board of Directors/Trustees has delegated to Merrill Lynch
Investment Managers, L.P. and/or Fund Asset Management, L.P. (the
"Investment Adviser") authority to vote all proxies relating to the
Fund's portfolio securities. The Investment Adviser has adopted
policies and procedures ("Proxy Voting Procedures") with respect to the
voting of proxies related to the portfolio securities held in the
account of one or more of its clients, including a Fund. Pursuant to
these Proxy Voting Procedures, the Investment Adviser's primary
objective when voting proxies is to make proxy voting decisions solely
in the best interests of each Fund and its shareholders, and to act in
a manner that the Investment Adviser believes is most likely to enhance
the economic value of the securities held by the Fund. The Proxy Voting
Procedures are designed to ensure that that the Investment Adviser
considers the interests of its clients, including the Funds, and not
the interests of the Investment Adviser, when voting proxies and that
real (or perceived) material conflicts that may arise between the
Investment Adviser's interest and those of the Investment Adviser's
clients are properly addressed and resolved.
In order to implement the Proxy Voting Procedures, the Investment
Adviser has formed a Proxy Voting Committee (the "Committee"). The
Committee is comprised of the Investment Adviser's Chief Investment
Officer (the "CIO"), one or more other senior investment professionals
appointed by the CIO, portfolio managers and investment analysts
appointed by the CIO and any other personnel the CIO deems appropriate.
The Committee will also include two non-voting representatives from the
Investment Adviser's Legal department appointed by the Investment
Adviser's General Counsel. The Committee's membership shall be limited
to full-time employees of the Investment Adviser. No person with any
investment banking, trading, retail brokerage or research
responsibilities for the Investment Adviser's affiliates may serve as a
member of the Committee or participate in its decision making (except
to the extent such person is asked by the Committee to present
information to the Committee, on the same basis as other interested
knowledgeable parties not affiliated with the Investment Adviser might
be asked to do so). The Committee determines how to vote the proxies of
all clients, including a Fund, that have delegated proxy voting
authority to the Investment Adviser and seeks to ensure that all votes
are consistent with the best interests of those clients and are free
from unwarranted and inappropriate influences. The Committee
establishes general proxy voting policies for the Investment Adviser
and is responsible for determining how those policies are applied to
specific proxy votes, in light of each issuer's unique structure,
management, strategic options and, in certain circumstances, probable
economic and other anticipated consequences of alternate actions. In so
doing, the Committee may determine to vote a particular proxy in a
manner contrary to its generally stated policies. In addition, the
Committee will be responsible for ensuring that all reporting and
recordkeeping requirements related to proxy voting are fulfilled.
The Committee may determine that the subject matter of a recurring
proxy issue is not suitable for general voting policies and requires a
case-by-case determination. In such cases, the Committee may elect not
to adopt a specific voting policy applicable to that issue. The
Investment Adviser believes that certain proxy voting issues require
investment analysis - such as approval of mergers and other significant
corporate transactions - akin to investment decisions, and are,
therefore, not suitable for general guidelines. The Committee may elect
to adopt a common position for the Investment Adviser on certain proxy
votes that are akin to investment decisions, or determine to permit the
portfolio manager to make individual decisions on how best to maximize
economic value for a Fund (similar to normal buy/sell investment
decisions made by such portfolio managers). While it is expected that
the Investment Adviser will generally seek to vote proxies over which
the Investment Adviser exercises voting authority in a uniform manner
for all the Investment Adviser's clients, the Committee, in conjunction
with a Fund's portfolio manager, may determine that the Fund's specific
circumstances require that its proxies be voted differently.
To assist the Investment Adviser in voting proxies, the Committee has
retained Institutional Shareholder Services ("ISS"). ISS is an
independent adviser that specializes in providing a variety of
fiduciary-level proxy-related services to institutional investment
managers, plan sponsors, custodians, consultants, and other
institutional investors. The services provided to the Investment
Adviser by ISS include in-depth research, voting recommendations
(although the Investment Adviser is not obligated to follow such
recommendations), vote execution, and recordkeeping. ISS will also
assist the Fund in fulfilling its reporting and recordkeeping
obligations under the Investment Company Act.
The Investment Adviser's Proxy Voting Procedures also address special
circumstances that can arise in connection with proxy voting. For
instance, under the Proxy Voting Procedures, the Investment Adviser
generally will not seek to vote proxies related to portfolio securities
that are on loan, although it may do so under certain circumstances. In
addition, the Investment Adviser will vote proxies related to
securities of foreign issuers only on a best efforts basis and may
elect not to vote at all in certain countries where the Committee
determines that the costs associated with voting generally outweigh the
benefits. The Committee may at any time override these general policies
if it determines that such action is in the best interests of a Fund.
From time to time, the Investment Adviser may be required to vote proxies in
respect of an issuer where an affiliate of the Investment Adviser (each, an
"Affiliate"), or a money management or other client of the Investment Adviser
(each, a "Client") is involved. The Proxy Voting Procedures and the Investment
Adviser's adherence to those procedures are designed to address such conflicts
of interest. The Committee intends to strictly adhere to the Proxy Voting
Procedures in all proxy matters, including matters involving Affiliates and
Clients. If, however, an issue representing a non-routine matter that is
material to an Affiliate or a widely known Client is involved such that the
Committee does not reasonably believe it is able to follow its guidelines (or if
the particular proxy matter is not addressed by the guidelines) and vote
impartially, the Committee may, in its discretion for the purposes of ensuring
that an independent determination is reached, retain an independent fiduciary to
advise the Committee on how to vote or to cast votes on behalf of the Investment
Adviser's clients.
In the event that the Committee determines not to retain an independent
fiduciary, or it does not follow the advice of such an independent
fiduciary, the powers of the Committee shall pass to a subcommittee,
appointed by the CIO (with advice from the Secretary of the Committee),
consisting solely of Committee members selected by the CIO. The CIO
shall appoint to the subcommittee, where appropriate, only persons
whose job responsibilities do not include contact with the Client and
whose job evaluations would not be affected by the Investment Adviser's
relationship with the Client (or failure to retain such relationship).
The subcommittee shall determine whether and how to vote all proxies on
behalf of the Investment Adviser's clients or, if the proxy matter is,
in their judgment, akin to an investment decision, to defer to the
applicable portfolio managers, provided that, if the subcommittee
determines to alter the Investment Adviser's normal voting guidelines
or, on matters where the Investment Adviser's policy is case-by-case,
does not follow the voting recommendation of any proxy voting service
or other independent fiduciary that may be retained to provide research
or advice to the Investment Adviser on that matter, no proxies relating
to the Client may be voted unless the Secretary, or in the Secretary's
absence, the Assistant Secretary of the Committee concurs that the
subcommittee's determination is consistent with the Investment
Adviser's fiduciary duties
In addition to the general principles outlined above, the Investment
Adviser has adopted voting guidelines with respect to certain recurring
proxy issues that are not expected to involve unusual circumstances.
These policies are guidelines only, and the Investment Adviser may
elect to vote differently from the recommendation set forth in a voting
guideline if the Committee determines that it is in a Fund's best
interest to do so. In addition, the guidelines may be reviewed at any
time upon the request of a Committee member and may be amended or
deleted upon the vote of a majority of Committee members present at a
Committee meeting at which there is a quorum.
The Investment Adviser has adopted specific voting guidelines with
respect to the following proxy issues:
o Proposals related to the composition of the Board of Directors of issuers
other than investment companies. As a general matter, the Committee
believes that a company's Board of Directors (rather than shareholders) is
most likely to have access to important, nonpublic information regarding a
company's business and prospects, and is therefore best-positioned to set
corporate policy and oversee management. The Committee, therefore,
believes that the foundation of good corporate governance is the election
of qualified, independent corporate directors who are likely to diligently
represent the interests of shareholders and oversee management of the
corporation in a manner that will seek to maximize shareholder value over
time. In individual cases, the Committee may look at a nominee's history
of representing shareholder interests as a director of other companies or
other factors, to the extent the Committee deems relevant.
o Proposals related to the selection of an issuer's independent auditors. As
a general matter, the Committee believes that corporate auditors have a
responsibility to represent the interests of shareholders and provide an
independent view on the propriety of financial reporting decisions of
corporate management. While the Committee will generally defer to a
corporation's choice of auditor, in individual cases, the Committee may
look at an auditors' history of representing shareholder interests as
auditor of other companies, to the extent the Committee deems relevant.
o Proposals related to management compensation and employee benefits. As a
general matter, the Committee favors disclosure of an issuer's
compensation and benefit policies and opposes excessive compensation, but
believes that compensation matters are normally best determined by an
issuer's board of directors, rather than shareholders. Proposals to
"micro-manage" an issuer's compensation practices or to set arbitrary
restrictions on compensation or benefits will, therefore, generally not be
supported.
o Proposals related to requests, principally from management, for approval
of amendments that would alter an issuer's capital structure. As a general
matter, the Committee will support requests that enhance the rights of
common shareholders and oppose requests that appear to be unreasonably
dilutive.
o Proposals related to requests for approval of amendments to an issuer's
charter or by-laws. As a general matter, the Committee opposes poison pill
provisions.
o Routine proposals related to requests regarding the formalities of
corporate meetings.
o Proposals related to proxy issues associated solely with holdings of
investment company shares. As with other types of companies, the Committee
believes that a fund's Board of Directors (rather than its shareholders)
is best-positioned to set fund policy and oversee management. However, the
Committee opposes granting Boards of Directors authority over certain
matters, such as changes to a fund's investment objective, that the
Investment Company Act envisions will be approved directly by
shareholders.
o Proposals related to limiting corporate conduct in some manner that
relates to the shareholder's environmental or social concerns. The
Committee generally believes that annual shareholder meetings are
inappropriate forums for discussion of larger social issues, and opposes
shareholder resolutions "micromanaging" corporate conduct or requesting
release of information that would not help a shareholder evaluate an
investment in the corporation as an economic matter. While the Committee
is generally supportive of proposals to require corporate disclosure of
matters that seem relevant and material to the economic interests of
shareholders, the Committee is generally not supportive of proposals to
require disclosure of corporate matters for other purposes.
Item 8 - Portfolio Managers of Closed-End Management Investment Companies - Not
Applicable at this time
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our evaluation
of these controls and procedures as of a date within 90 days prior to
the filing date of this report.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the second fiscal half-year of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Multi-Strategy Hedge Opportunities LLC
By: /s/ Robert C. Doll, Jr.
-----------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Multi-Strategy Hedge Opportunities LLC
Date: May 23, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Robert C. Doll, Jr.
-----------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Multi-Strategy Hedge Opportunities LLC
Date: May 23, 2005
By: /s/ Donald C. Burke
-----------------------
Donald C. Burke,
Chief Financial Officer of
Multi-Strategy Hedge Opportunities LLC
Date: May 23, 2005